Talks of realty price correction are highly speculative

Sudhir Pai, CEO, Magicbricks.com, says that the proposals on affordable housing in the Union Budget are bound to provide an impetus to the real estate market. He also asserts that demonetisation is not going to result in any significant price corrections, as the housing sector has already been stressed for the past couple of years.

What will be the most likely impact of the Union Budget on the real estate business in the near and mid-term?
What´s come as significant positives for the real estate sector are the announcements on affordable homes. One is the government according it infrastructure status, which means projects in that segment will be able to raise finance at a much lower cost. The second significant announcement on affordable homes is changing the definition of carpet area to built-up area, which means homes that are larger and cost more will also get into the affordable segment. That´s a large plus and developers who build more homes in that segment will do extremely well. The other big plus of the Budget has been not directly on real estate but the big push to infrastructure spending.

Since you just shared your outlook for the near and mid-term, what would it imply for both buyers and sellers?
What we have been doing for the last few months since demonetisation is to try and separate facts from speculation. There is a lot of speculative talk that demonetisation would have a certain kind of an impact. What we have been trying to do is look at hard data on the site and see what the nature of the pack actually is. There is speculation that prices are going to fall steeply. But prices don´t seem to have fallen so much simply because sellers seem to be holding on to prices. In fact, some of the landlords even seem to have backed out of the market. Even the number of homes put up for sale has shrunk. Although prices have not fallen as much as people had expected, transactions have fallen steeply by anything between 20 to 50 per cent across different cities.

Although you have denied it, is there any evidence of a price correction?
Most of the opinions that are centred on prices falling, come from an assumption that if transactions fall, then prices too will fall. The real estate market has not been in the best of health for the last two years. But have the prices fallen? If you look at actual data, prices have remained stagnant. In a way, prices not having risen is also a price correction. Even recently the assumption was that because of demonetisation, transactions will fall even more and sellers will come under pressure, leading to a decline in prices. What we are actually witnessing is that if you look at the resale market, a fairly significant number of sellers are waiting for prices to improve before they sell. And the rest of the sellers in the market seem to be holding on to prices. Now whether they will continue to hold on to prices if transactions continue to be under pressure for the next three months remains to be seen. Of course, there are a few distressed deals, but then they are there even in the best of markets.

Around the time of demonetisation, you had indicated a rise in rental demand. Do you see home rentals rationalising in the long term?
In a macro market, if the purchase transactions go down, the rental market can be expected to harden up a bit, as more people are expected to rent than buy homes in the short term. But there are exceptions to this, such as Noida. There is a lot of supply that has hit the market in the last few quarters resulting in rental prices actually softening. But on the whole if transactions fall from a purchase perspective, the rentals are expected to harden up a bit. If you look at the data on our site, it seems to be 8 to 12 per cent up compared to what it was a quarter ago.

There is now also this emphasis on moving businesses away from the big cities by creating scores of Smart Cities all over the country. Will that too have some impact on the realty market?
That I guess one needs to wait and see because people will go where there are jobs and economic activity. At this point in time, if you look at migration and related trends, clearly urbanisation seems to be progressing and people are still flocking to the larger cities. Now whether that trend is going to reverse and people are going to move back to Tier-3 and Tier-4 cities or smaller urban pockets will depend a lot on economic activity picking up there.

Talking specifically about your sector, as has happened in sectors such as banking, retail, travel and hospitality, do you foresee a significant part of property transactions also shifting to the online space?
It´s a long-held view and we have reiterated it over and over again, we don´t think people will buy a home online like they buy a shirt or a trouser. Our view is that online will continue to be a medium for buyers to do their research. Most people who are buying a house, are buying something which is very valuable. They need to have the physical comfort of having paid money to the seller. That matters more to a consumer than paying to a screen. Having said that, online will play a bigger role in the decision-making process. There´s a caveat, though. Some part of transactions might move online. Non-resident Indians (NRI) wanting to buy small-ticket homes for investment purposes might do that online. Similarly, if some banks are selling stressed or seized properties, that will happen online. Online is going to play a much larger role than what people had anticipated.

Has that also impacted realtors´ margins?
Realtors have recognised online as big. They have set up digital marketing teams to harness this medium really well in terms of where they spend their dollars as well as for customer acquisition, they are also increasingly shifting from offline to online. One of the reasons we had a reasonably good Q3 is due to shift of dollars moving from traditional mediums of advertising to online.

As the country´s leading property portal, how is your existing suite of products faring and what more is on the cards for 2017-18?
Our business is in the classified marketplace. We have a platform where buyers are on one side and sellers on the other. Our job is to make the two of them meet or discover each other. That core platform is doing exceedingly well. The number of listings on the site is showing a smart increase, plus their quality is improving. If you see the buyer side, traffic on the site has been increasing quite handsomely. Most of our increase is coming in through mobile devices rather than through the Web. Three things matter on the core platform: traffic, listings and the number of inquiries generated. All three matrixes are growing, as most online businesses are witnessing a healthy growth.

In the last few months, we have put out a few reasonable innovations in the market. We have created an experience centre in Mumbai that´s given us pretty encouraging results. We are going to put up six more centres spread across four more cities in the next three months. Second, we launched this pricing tool called PropWorth. What it does is if you see a property that you like, just key it into that tool to get an approximate price. We are now ready with an auction platform which we will be taking live with HDFC Bank. Plus, we are launching a separate segment for commercial real estate, separate platform for rental homes and a new platform that enables landlords to sell their properties through Magicbricks.com.